Navigating My Taxes, One Year At A Time
You never know.
I’ve had ‘good’ tax years and ‘bad’ tax years but each year my taxes have changed so drastically that I have no clue what to expect. While I successfully track my personal finance in all other areas of my life the tax code absolutely flummoxes me and each year adds more confusion.
My first year doing my own taxes was in 2010 when some kid in biology class at college mentioned he got a great return after no longer being claimed as a dependent by his folks. I brought it up to my dad and he agreed to not file me as his dependent for the year. The previous summer I had spent wildland firefighting in Colorado and earned a cool $12,000 during the rainy and mostly fire-free summer. I ended up receiving a hefty refund — quite the confidence boost. Then I received a letter from the IRS: I was being audited.
My dad had been flagged by the IRS for an audit due to his high charitable deductions. They decided to audit him and all of his adult children. My dad successfully tracked down all his receipts while I panicked searching among my piles of paper for their requested info. We all ended up making it out of the audit just fine but I had been sufficiently horrified by the process that I bought a file box after that.
The next year was easier. I only had two non-income state taxes and three W2s. I began a side hustle selling items on eBay to save for a boat trip. I struggled at the time to find info on how to pay taxes on eBay income but otherwise the whole process took less then two hours.
2012 was much worse. I got married in 2011 and our separately nomadic lifestyles had resulted in a mess of paperwork: 9 W2s from 5 different states plus duplicate retirement account forms scholarships, name changes and a whole mess of other issues. Combined, we had only made around $35,000. I spent an entire weekend sorting through the mess and inputting it into Turbo Tax only to realize how much Turbo Tax was going to charge us to file all of the state tax returns. At that point I had sunk so much time and energy into organizing it that I felt like I had no other option but to pay it. Turbo Tax earned the equivalent of a month’s worth of groceries from us that year.
The next couple tax years were pretty rough. We were barely making it and working many low paying jobs. Many of these jobs were for small businesses with nonexistent accounting departments. Sometimes they wouldn’t withhold taxes from our paychecks correctly which led to a nasty shock around tax time. Some jobs wouldn’t start withholding taxes from paychecks until the employee had earned $3,000 and subsequently much of our income wasn’t taxed for much of the year.
Looking back now, I realize this was another example of how being part of the working poor sets one up for disadvantages in unexpected ways. We worked extra jobs to make ends meet, but those extra jobs came from smaller businesses with their own tax issues that floated downstream to hurt us at tax time.
By 2014 we figured we had finally won taxes. We had purchased a home, winnowed our W2’s down to four and we made more money from legitimate employers who had their own taxes squared away. As I plugged in our numbers into Turbo Tax, I watched the little red number grow with excitement. It wasn’t until the last page that I realized that the little red number wasn’t my refund amount but the amount I owed. I was crushed. I drove over to a local H&R block where a kind woman looked over my work, plugged the numbers into her software and confirmed my fears. She saw my disappointment and refused to charge me for her help. I went back home, opened a bottle of wine, paid Uncle Sam, and we upped our withholdings at our jobs.
This year I broke up with Turbo Tax. In 2016 we had sold our house at a profit, moved to a new state for a job and started a business with its own set of tax complications. I decided to hire a CPA who spent an initial meeting with me listening to all of my tax liabilities and concerns. He made some recommendations on how to structure my business legally and then turned my stack of papers into a tidy return which happened to include a refund.
I was especially concerned about estimating quarterly taxes going forward. My business has been growing rapidly and I’ve started to draw a paycheck and I was extremely confused on how much I needed to pay in taxes for both my business and my income. He helped me project what my business earnings would be the following year and when we returned to sign the returns for our personal and business taxes he gave me estimated tax payment vouchers to remit quarterly for this upcoming year. For all of this help I paid $385 and a great weight was immediately lifted from my shoulders.
With Jake on my team I finally feel more confident about taxes and staying square with Uncle Sam but I still don’t know what next year’s return will bring. At the end of this month we will be welcoming a new tax credit in the form of a 7 to 8 pound bundle of joy. What will my taxes look like next year? Who knows! But I feel much more prepared to face what may come.
Meg Renninger is an entrepreneur in Texas.
Support The Billfold